So, you recently signed a home purchase agreement. Congratulations! but your real estate agent will soon hand you a confusing bundle of pages called a “title commitment” (sometimes called a “title folder” or “preliminary title report”) and you’re probably wondering, “what is this and what do with that?” good question! If you know what to look for, examining the pledge of title can reveal important information about who owns, or owns a part of, or may use the property you’re about to buy. (Learn more about the documents to expect when closing in escrow.)
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what is a title commitment?
A title commitment (or whatever yours is called) is basically the title company’s promise to issue a title insurance policy on the property after closing. the title commitment contains the same terms, conditions, and exclusions that will be in the actual insurance policy.
Reading: What is title insurance commitment
Nearly all sales and purchase agreements contain language that requires the seller to provide the buyer with title insurance. Most title companies across the country issue the title policy using forms distributed by the American Title Association (Alta).
A homeowner’s title insurance policy protects you, as the new owner, in the event that an unknown problem affecting the property at the time the policy is issued causes later problems with your property title.
If you’re taking out a mortgage on the property, your lender will also require a “lender’s policy,” also known as a “mortgage holder’s policy,” which protects the lender against the same type of problems. (After all, the lender is holding the property as collateral and doesn’t want to find out later that an unknown party has competing claims against it.)
what could go wrong if buyers don’t check the title commitment?
If you have the title commitment in hand, does that mean you don’t need to worry about your title because your title insurance will cover any problems? well, not quite.
the title company is willing to insure only against problems that arise as surprises later. Before issuing the title commitment, research the public records and exclude from insurance coverage anything that could possibly affect the title of the property. the title company refers to these exclusions as “exceptions.” If, during the time you own the home, you have problems stemming from one of these excluded items, you can’t go to the title company for help.
Let’s say, for example, someone shows up at your door a month after you move in and informs you that they will be using the easement you have on your property to store gravel in your backyard. This surprises him, so he calls his title insurance company. If the easement was listed as an exception on your title insurance policy (which, with an easement, is almost always the case), your title insurance company will politely inform you that it is not responsible for fixing this problem – you will have to deal with it. with do it yourself.
when an “exception” to coverage could be a problem
When a title company issues insurance, it will list as exceptions and exclude from coverage certain standard items that apply to all properties. will also make exceptions for specific items discovered during your record search that pertain solely to the insured property; and there may be several of them.
Whether standard or specific, not every exception a title company lists in its policy is necessarily a cause for concern. for example, the title company might list a utility easement (such as the power company’s right to run wires across your property or come check your meter) as an exception. such an easement is a fairly common exception, and as long as the power company’s use of the easement doesn’t interfere with your own use of the property, you probably don’t have to worry about it.
however, some problematic exceptions could affect your ownership or use of the property or include terms unacceptable to you. if, for example, you have particular plans for the property; Let’s say, you plan to build a shed in the backyard; would like to know about anything that might interfere with those plans, such as the gravel storage easement mentioned above.
Exceptions can also be significant because they point to expenses you will have to pay in connection with the property, such as covenants that require payments to the homeowners association that governs the property.
or exceptions can alert you to changes that need to be made to the property. For example, you may find that the title company has made an exception for items that appear on a registered survey of the property. When reviewing the survey, you may need to remove the back fence because it is not on the property line, but is actually within a few feet of the neighbor’s property. If this problem is not discovered and resolved before closing (for example, by having the seller move the fence or obtain an easement from the neighbor for its existence on the neighbor’s property), the title company will not help you resolve this problem. theme. You could have a big expense after closing if the neighbor demands that you remove the fence from their property.
For these reasons, it is important that you or your attorney carefully review the title commitment, understand the exceptions, and determine if any are unacceptable. Since most purchase agreements contain a provision that makes the purchase of the property conditional on the purchaser’s review and acceptance of the condition of the title, resolve any issues found in your examination of the title commitment prior to purchase the property is a valuable opportunity to save yourself from a nasty title issue later.
For more detailed information on reviewing line-by-line title pledge exceptions and how to deal with issues you may encounter there, please read, Reviewing and Dealing with Title Promise Exceptions Before You Buy a Home.